When Wisconsin manufacturers look to expand, the state’s Industrial Revenue Bond (IRB) Program provides a low-cost option to generate funding for qualifying projects. This incentive is offered in every state and is regulated at the federal level; WEDC administers the program in Wisconsin. What follows are some common questions and answers regarding the IRB Program.
What are IRBs?
IRBs are tax-exempt bonds issued by a city, town, county, village, or a regional or community development authority to help finance certain types of economic development projects.
What is the purpose of the IRB Program?
IRBs are offered to help manufacturers grow their operations in Wisconsin (with a primary focus on small to midsize manufacturers due to the program rules). The program requires the cooperation of the community where the company is located, since a local authority must issue the tax-free bonds and then lend the money raised through the bond issue to the manufacturer at an interest rate that’s lower than the rates available through private financing.
What types of projects are eligible for IRBs?
Most often, the funds are used to build new factory space or add onto an existing plant. The funds can be used for nearly every type of processing that results in a change in the condition of tangible personal property.
What activities are not eligible uses of IRB funds?
They may not be used for wholesaling, retailing, repair services, or the provision of recreational services. They cannot be used for inventory or working capital. They also cannot be used for food production or to feed, grow or slaughter animals. They cannot be used for software, intellectual property, or biotechnology.
What types of manufacturing would qualify?
Any manufacturing process in which raw material goes into a factory and comes out in a different form—including producing metal components for cars, making plastic tubing, and food processing (but not food production), to cite a few examples.
What are the advantages of IRBs?
For manufacturers, IRB funds generally carry a lower interest rate than a conventional bank loan. For investors, income earned from the bonds is exempt from federal taxes. If the bonds are issued by a community development authority or a regional development authority, they can also be exempt from state taxes. For a municipality, IRBs are a way to encourage economic development, build local businesses, and grow jobs.
How can a company be successful at obtaining IRB funding, and how much money is available through an IRB?
WEDC administers the IRBs for manufacturers to expand, and reviews applications on a first come, first served basis. The maximum amount for each IRB is $10 million, and companies generally have three years to spend the funds.
Is there any type of project that can exceed the $10 million IRB cap?
Exempt facility bonds used for environmental purposes—such as solid waste disposal, sewage, or producing local energy or gas—do not have to abide by the $10 million bond limit. In some cases, the costs of these projects can be quite high. For example, in 2020 and 2021, one project that converted cow manure into methane gas received a total of $41 million in IRB funding.
How do the rules limit IRBs to smaller manufacturers?
With any IRB issued for more than $1 million, the company seeking the funds cannot spend more than $20 million for capital projects within the municipality that issues the bonds during a six-year period spanning the three years before and the three years after the IRB funding comes through.
Since municipalities issue the bonds, does the money come from public tax dollars?
No public money is used in IRBs. The bonds are funded either by a financial institution or through a public offering to credited investors.
What is the total amount of IRB funding for Wisconsin?
Federal rules determine a cap on the volume of private activity bonds (the category that includes IRBs as well as several other types of bonds) , with that cap varying by state and by year. Each state’s allotment is calculated using a formula based on the state’s population. In Wisconsin, a total of $707 million is available in 2023; however, not all of that is allocated to WEDC for IRBs. The State Building Commission received $10 million, while WEDC and the Wisconsin Housing and Economic Development Authority (WHEDA) each was authorized to allow bond issuances that could total up to $348.5 million for this year.
How quickly is the allocation generally used up?
That varies greatly from year to year, and is often dependent on the prevailing market interest rates. When interest rates rise, companies can benefit more from the lower rates that come with IRBs. When interest rates are low, businesses don’t see as much savings, and thus have less of an incentive to go through the process and the paperwork of applying for an IRB.
To illustrate some of the program’s highs and lows:
- In 2017, 11 projects used a total of $79.2 million in IRBs.
- In 2019, five projects used a total of $177.4 million in IRBs.
- Most recently, with interest rates low, three projects used a total of $21.8 million in IRBs in 2021, and only one project received the funding in 2022, for $2.9 million.
Now that interest rates are rising, WEDC is seeing more interest in IRBs. So far, in 2023, two projects have been authorized to receive a total of $12.8 million in funding. Sky High Marketing—which prints and embroiders promotional products—is getting $2.8 million to build a new headquarters and production plant in Waukesha, while Pagel’s Ponderosa Dairy, in Kewaunee, will receive $10 million for its plans to build a facility to turn cow manure into an environmentally compliant and safe product that can be reused on the land.
Are any changes in IRB rules in the works to expand the program’s use?
A major factor limiting the number of companies that seek to use IRBs as a growth tool is the six-year, $20 million capital expenditure limit. This limit has been in place for about 20 years; a bill before Congress would increase that cap, allowing more projects to qualify for the program.